How Super Angels Use Their Social Leverage - An Interview With Howard Lindzon & Tom Peterson - AZ Tech Beat
- Tishin Donkersley, M.A.
- On April 10, 2013
Social leverage—the ability to leverage one’s success and relationships to fuel startups with high-level resources. Social leverage can turbocharge a startup, enabling it to break through barriers and make Series A money a reality.
Howard Lindzon and Tom Peterson are the founders and driving force behind Social Leverage, LLC. They are known for being early stage investors and leveraging their expertise, reputations and experience to assist the next batch of entrepreneurs, products and services.
Their portfolio includes companies such as Rent.com ($415 million exit), Golfnow.com (purchased by Comcast), LifeLock, embed.ly, TweetDeck (acquired by Twitter for $50 million), bit.ly, Buddy Media (acquired by Salesforce for $745 million), OnTheAir (acquired by Yahoo), Assistly (now Desk.com, acquired by Salesforce for $70 million), and their latest, Videolicious, and have deal partners such as DFJGotham, Google Ventures and Foundry Group. The team at Social Leverage is recognized as a Super Angel. They reorganize early stage companies, investing with disciplined capital, uniform investing rules and a sense of community that is recognized by the big venture capital firms.
Lindzon is co-founder and CEO of StockTwits, which was recently named “one of the top 10 most innovative companies in web” by FastCompany and one of the “50 best websites” by Time magazine. He is also the creator of Wallstrip (purchased by CBS Corp.) and general partner of Social Leverage. He has more than twenty years of experience in the financial community, acting in both an entrepreneurial and investing capacity.
Peterson is the CEO and general partner of the Social Leverage Group of Companies, co-founder of StationCreator Inc., and angel investor and advisor to Lindzon’s hedge fund. Peterson manages the day-to-day activities of Social Leverage and assists portfolio companies in need with operational and business development expertise.
They have been friends for over 25 years and balance each other—truly a yin and yang partnership.
Lindzon and Peterson engage in early stage investing from $100,000 to $500,000 and focus more on customer-ready early stage investments. Once they are “all in,” they fuel the company with mentors and resources to prepare it for potential Series A funding. Both acknowledge that this stage of the startup game requires patience, a strong sense of marketplace dynamics and good timing.
I sat down with Howard and Tom to discover what startups need to know to get noticed by these Super Angels.
What do startups need to understand before they decide to do something with their “great idea?”
Tom: Founders need to do their homework and research to see if their idea has been done before. Begin by looking at the national accelerator programs and see what has been done, and succeeded, or where companies pivoted. Then look at CrunchBase and see if the company got funded and by whom. Also, you need to discover if you can apply technology to a previous situation where there wasn’t technology, cause disruption, and identify where you can optimize and monetize. Most importantly, make sure the idea has scale.
But don’t you need money to scale?
Howard: Founders should put as much as they can in themselves and not get paid. Get it to a point where you can show an investor something and you can get people using the site—show us how you can monetize.
Tom: Ideas that don’t have a large scale to them—for those people, they should try and bootstrap and not take venture money. [Reason being] founders might not have a great exit and have to pay out the VC (venture capitalist) so much and give up a ton of their company.
What do you look for in a team?
Tom: We look at the pedigree of the team and what they have done in the past; have they had any successful exits or had good mentors. It really depends where we are in the discovery process. We like a minimum of two co-founders, and the founders to be developers. They are able to keep their costs down, do the work themselves and won’t spend their money too soon.
What if you aren’t a “technical” person but you have a good idea?
Tom: Then I suggest you learn how to do it, enough to know the language, and know if a developer is telling you the truth, and not spending all of your money on a job that he says will take 20 hours and realistically will take 2 hours. Having strong mentors is important in that aspect.
How do you vet the teams and the product?
Tom: Early on it’s a lot of gut, calling references, and checking out the team. If we have to do a deep dive, we will put the brainpower of our network behind Social Leverage, such as our past CTOs, market leaders and our own advisor team. It comes down to your network. We will also look at how long the team has been together, how they met, find out how they work together, have they built together, have they had exits and what they are looking to do. We’ve also seen the dark side of co-founders breaking up.
Howard: Some of our deals come directly from friends or investors in my fund or directly from an entrepreneur. We love when an entrepreneur has domain experience.
How many solicitations do you have a month?
Howard: We have an average of 50 deals come in a month and end up doing one to two deals a month. Many we refer out.
Do unsolicited pitches usually get your attention?
Tom: Rarely. It’s better to get a warm introduction from someone in our network who can vouch for you.
When does Social Leverage get involved with a team?
Tom: We don’t get involved with a team until the company is product ready and proven the revenue. However, if we like the team, we encourage them to go enter a mentor program. About 50 percent of our companies have gone through a national mentorship program that had a strong regional pool of people that mentored the team. On the other side, if I get a call from one of our partners, such as Brad Feld, Chris Dixon, Fred Wilson or Roger Ehrenburg, then we’ll take a look at the team right away because product has been vetted.
How does Social Leverage help these startups?
Howard: Our goal is to really help companies grow fast and move people through the matrix. We will help them sell the product, make introductions, or just give straight money—and be the best angel I can be. I want to help companies go as fast as they can and reduce friction so that they (the team) can just go build the product. My job is also to build relationships with the corporate development teams and make it easy for teams to progress. On the other side, we also help companies wind down or find a home.
Tom: If we invest in a team, we want to make an early impact, spend time with them and truly get them to their “A round.”
What are the turnoffs of startups pitches?
Howard: The first thing that matters is that the entrepreneurs do their homework. You’d be surprised how many don’t. So many forget some social courtesy and think that carpet bombing angels is the best way to get our attention—it’s not. They need to do their own due diligence. It’s simple. Go look at the deals we’ve done in the past and see if their idea fits. We are eclectic and you can see what kind of companies we are interested in from doing your homework.
What does your homework look like?
Tom: We don’t solely rely on social proof. We do our homework on the companies—we have to. If a partner like Brad Feld asks us to look at a company, we want to report back and speak intelligently. We also have our network look at and vet the company. However, if a team isn’t ready, but we like them, we suggest for them to apply for a national accelerator program.
If a company does get your attention, what are some pitch must dos?
Howard: Show me some respect by doing your homework and then talk to me like you know me. [Most importantly,] always lead with your best deck—and your deck needs to give me everything. Explain the landscape, the problem, what the team looks like, where is the grid…everything.
Tom: Tell me the product, the pain points, why people will pay for this, the product market fit, value proposition, trending data, how to monetize and the economics behind it.
Last words of advice for startups?
Tom: Do the research and see if anyone is doing anything similar or graduated—especially at national accelerator programs. Test the marketplace. I continually go back to testing traction—and companies need to show me the traction. And, always be closing and selling.
Howard: Too many entrepreneurs are in a rush and everybody wants something from an angel. Don’t hit up people that you don’t understand. Do your homework.
To learn more about Social Leverage, LLC, visit www.socialleveragellc.com.
Photos courtesy of Social Leverage, LLC.